Companies listed on the Tokyo Stock Exchange's top-tier market will be required to disclose their climate change goals and strategies under a revised Corporate Governance Code, according to a draft seen by The Yomiuri Shimbun.
The TSE and the Financial Services Agency will soon release the draft, obtained Monday, with the aim of revising the code by June.
The revised code will also include items on notices in English, the composition of boards and the promotion of women.
Requiring the disclosure of efforts and measures by listed companies to tackle climate change is based on the Task Force on Climate-related Financial Disclosures, an international framework for disclosing climate such information, according to the draft.
Proposals compiled by the financial authorities of major countries call for companies to report to investors on their management strategies, goals and risk management in relation to climate change.
While the code is not legally binding, companies that do not follow it must answer to investors. The planned revision is expected to require companies to further strengthen their response to efforts to combat climate change.
The move to revise the code has been prompted by institutional investors including major overseas funds who are becoming increasingly concerned about how companies are tackling climate change.
The FSA and TSE have concluded that unless companies present in an easy-to-understand manner the risk of losses due to natural disasters and the countermeasures in place, they will not be able to attract overseas investment.
The TSE plans to reorganize its markets in spring 2022, with most of about 2,200 of the companies currently listed on the top-tier First Section moving to its successor, provisionally called the Prime Market.
Some companies are already taking action in regard to efforts to combat climate change. Hitachi, Ltd. has analyzed and released the impact and risks posed by an increase in the global average temperature for each of its business fields, such as railroads and automobiles, in addition to setting its reduction target for the amount of CO2 emissions.
The central government has set a goal of reducing greenhouse gas emissions to net zero by 2050. With the revision of the code, it hopes to strengthen corporate efforts in the field and provide a boost toward achievement of the goal.
The revision will also require companies listed on the Prime Market to disclose information in English related to general shareholders meetings, such as convocation notices.
Regarding the composition of boards of directors, the revised code will require that at least one-third of board members be independent outside directors. On an as needed basis, companies will be urged to consider appointing such directors as the majority of the board. When a subsidiary of a listed company joins the Prime Market, the subsidiary is required to make outside directors a majority, or set up a committee to manage conflicts of interest with the parent company.
Furthermore, the revision will call for all listed companies to set targets for appointing women, non-Japanese staff and mid-career hires to management positions to further diversify core human resources.
The Corporate Governance Code is a set of guidelines formulated in June 2015 with the aim of increasing corporate value and strengthening international competitiveness. It requires all listed companies to increase transparency by appropriately disclosing information and having independent outside directors monitor operations. The code was revised in June 2018 to include the appointment of women and foreign nationals to boards of directors and to ensure diversity.
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